Research Notes
Dixy Group - Prominent yet Undervalued
| 26.02.09 |
Dixy Group has, since 2008, been listed as one of Russia’s TOP-10 largest consumer retailers, in terms of turnover. In our opinion, Dixy Group’s focus on the discount store segment amid the current drop in household disposable incomes could help the company further improve its sales indicators, which are already above market average.
We pay specific attention the following upside drivers:
- Dixy’s 12M 2008 operating results are indicative of the company’s steady economic development. Last year, Dixy Group’s sales performance was comparable with that of any key consumer retail company. However, in our view, the company’s current market value does not accurately reflect its performance.
- Dixy Group’s shares are currently traded with an EV/EBITDA ratio for 2009 of around 3.8, which is considerably below the similar indicator for peers in developed and emerging markets, and somewhat below the relevant average indicator for Russian peer companies
- In late November 2008, Dixy Group fully floated an additional share issue worth 30% of the company’s upsized charter capital and thus raised approximately USD 52 million. These funds could help the company boost its business development and successfully implement its investment strategy aimed at increasing organic growth and opening about 100 new retail outlets in 2009
- In general, despite the expected recession in the consumer retail market, we expect that retailers focused on FMCG sales in the discount segment are less subject to the risk of a sales slowdown. In line with the Economic Development Ministry’s projections, in 2009, the retail turnover growth rate in Russia may almost halve from 27.5% to 15%. However, public retailers’ efficient business models and the low saturation of modern retail formats should allow Russian retailers to boost their ruble revenues above the market average.
In line with our estimates, the target price of Dixy Group is USD 5.4 per share, which implies an upside of more than 200% to the current market value. This makes Dixy one of the most undervalued retailers on the market.
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Sectors: Consumer, RetailingCompany: Dixy Group